One of the topics after two decades of applying import substitution policy in
Iran manufacturing sector is the importance of industrial export expansion and
foreign relations. The main impetus to this policy transfer is the market
expansion and potential gains of exploiting the economies of scale and technical
upgrades. Based on this argument this research estimates the efficient scale and
gains of producing the optimal scale in large establishments in Iran
manufacturing groups at 2-digit ISIC (Rev.2). For this purpose a long run
translog cost functional, flexible function form is selected on the theoretical
basis. By using indirect seemingly unrelated regressions method, data at the
mean of a representative establishment are chosen to estimate the minimum and
the slope of LAC.
The result shows that the economies of scale exists in all of the industrial
groups and in the last year of this research (2001) all of them except the
manufacture of non-metallic mineral products (ISIC36) were producing lower than
optimal scale. The study of market structure shows that the most concentrated
market of manufacturing groups are overlapping with the most potential groups
for exploiting the economies of scale. Both of these reasons implies that the
domestic market constrain acts as a barrier to gathering the benefits of
economies of scale and necessitates the importance of applying outward oriented
policies.